Incorporating Generalized Marginal Budget Shares in a Mixed Demand System

This article extends a Rotterdam type of mixed demand system by replacing its constant marginal budget shares with the ones derived from originally defined and specified mixed Engel curves that take a generalized functional form using the Box-Cox transformation. An empirical illustration is given for Japanese demand for fresh and processed fruits and vegetables. The results show that the Rotterdam parameterization of marginal budget shares, which corresponds to those in linear mixed Engel curves, is preferred by the data, and that improper assumptions of the form of mixed Engel curves underlying a mixed demand system can bias its elasticities.